(a)

Portugal shall implement fully the fiscal consolidation measures foreseen in the 2011 budget amounting to around EUR 9 billion and additional measures introduced before May 2011 worth more than EUR 400 million. These measures aim at a reduction of the general government deficit within the time-frame referred to in paragraph 3. The revenue measures foreseen in the 2011 budget, worth EUR 3,4 billion, shall be complemented by an increase in social contributions via stricter inspection and compulsory contribution of trainees. In addition to the expenditure measures foreseen in the 2011 budget, additional measures including savings in the health sector, lower subsidies for state-owned enterprises (‘SOEs’), and reductions in social transfers shall be implemented.

(b)

Portugal shall adopt measures reinforcing a credible budgetary strategy and strengthening the budgetary framework. Portugal shall fully implement the measures foreseen in the new Budgetary Framework Law, including setting up a medium-term budgetary framework, prepare a thorough fiscal strategy analysis and establish an independent Fiscal Council. The local and regional financing frameworks shall be aligned to the new Budgetary Framework Law. Portugal shall step up reporting and monitoring of public finances, including, in particular, of arrears. Portugal shall start the systematic and regular analysis of fiscal risks as part of the budget process, including the risks stemming from Public Private Partnerships (‘PPPs’) and SOEs.

(c)

Portugal shall adopt the first batch of measures aimed at strengthening labour market functioning by limiting severance payments and making working time arrangements more flexible.

(d)

In the energy sector, Portugal shall take measures to facilitate entry, promote the establishment of the Iberian gas market and review the support and compensation schemes for the production of electricity. For other network industries, in particular transport, telecommunications and postal services, Portugal shall adopt additional measures to promote competition and flexibility.

(e)

Portugal shall take urgently action to foster competition and the economy’s adjustment capacity. This includes the abolition of special rights of the State in companies, a revision of competition law to make it more effective, lighter requirements for establishment and cross-border provision in services sectors.

(f)

Portugal shall improve practices and rules for public procurement contributing to a more competitive business environment and to more efficient public spending.

(a)

The 2012 budget shall include a budget neutral recalibration of the tax system with a view to lowering labour costs and boosting competitiveness.

(b)

The budget for 2012 shall include fiscal consolidation measures amounting to at least EUR 5,1 billion and aiming at a reduction of the general government deficit within the time-frame referred to in Article 3(3).

(c)

The budget shall provide for a reduction of expenditure in 2012 of at least EUR 3,5 billion including: a comprehensive reorganisation of the central administration eliminating duplicities and other inefficiencies; cuts in education and health; lower transfers to regional and local authorities; a reduction in public sector employment; adjustments in pensions; and reductions in capital expenditure and in other expenditure as set out in the Programme.

(d)

On the revenue side, the budget shall include revenue measures totalling around EUR 1,5 billion in a full year including, inter alia: broadening the corporate and personal income tax bases by reducing tax deductions and special regimes; ensuring the convergence of personal income tax deductions applied to pensions and labour income; changes in property taxation by substantially reducing exemptions; broadening VAT bases by reducing exemptions and rearranging the lists of goods and services subject to reduced, intermediate and higher rates; and, an increase in excises. These measures shall be complemented by action to fight tax evasion, fraud and informality.

(e)

Portugal shall put in place a strengthened legal and institutional framework for assessing fiscal risks prior to engaging in a PPP contract. Similarly, Portugal shall adopt a law to regulate the creation and the functioning of SOEs at the central, regional and local levels. Portugal shall not engage in any new PPP contract or create an SOE until the reviews and the new legal structure are in place.

(f)

Local government administration in Portugal has currently 308 municipalities and 4 259 parishes. Portugal shall develop a consolidation plan to reorganise and significantly reduce the number of such entities. These changes will come into effect by the beginning of the next local election cycle.

(g)

Portugal shall modernise the revenue administration by creating a single entity, reducing the number of municipal offices and addressing remaining bottlenecks in the tax appeal system.

(h)

Portugal shall introduce legislation to reform the unemployment insurance system, including a reduction of the maximum duration of unemployment insurance benefits to 18 months, a cap on unemployment benefits to 2,5 times the social support index, a reduction in benefits over the unemployment spell, a reduction of the minimum contributory period, and an extension to certain categories of self-employed. Active labour market policies shall be strengthened after a review of current practices and an agreed action plan.

(i)

The system of severance payments shall be brought in line with practices in other EU Member States, based on the specification in the Memorandum of Understanding.

(j)

Regulations on overtime pay shall be eased and increased flexibility of working time arrangements introduced in line with the Memorandum of Understanding.

(k)

Portugal shall promote wage developments consistent with the objectives of fostering job creation and improving firms’ competitiveness with a view to correcting macroeconomic imbalances. Any increase in minimum wages will take place only if justified by economic and labour market developments. Measures shall be taken to address weaknesses in the current wage bargaining schemes, including legislation to redefine the criteria and modalities of the extension of collective agreements and to facilitate firm-level agreements.

(l)

An action plan shall be prepared to improve the quality of secondary and vocational education.

(m)

The functioning of the judicial system shall be improved by implementing the measures proposed under the Judicial Reform Map and by conducting and auditing of the backlog cases in order to target measures to eliminate court backlog and foster alternative dispute settlements.

(n)

The competition framework shall be improved by reinforcing the independence and resources of the national regulator authorities. Professional services shall be liberalised by improving the professional qualification framework and by eliminating restrictions on regulated professions.

(o)

Regulated tariffs in electricity and gas retail markets shall be eliminated.

(a)

The 2013 budget shall include fiscal consolidation measures amounting to at least EUR 3,2 billion aiming at a reduction of the general government deficit within the time-frame referred to in Article 3(3). In particular, on the expenditure side the budget shall provide for a reduction in expenditure in 2013 of at least EUR 2,5 billion, including: reducing expenditures in the central administration, education and health; transfers to local and regional authorities; reducing the number of employees in the public sector; and, lowering costs by SOEs.

(b)

The budget shall include revenue measures including notably further broadening of corporate and personal income tax bases, higher excises taxes and changes in property taxation, yielding close to EUR 0,8 billion of additional revenue. Portugal shall improve the business environment by reducing administrative burden through the extension to all sectors of the economy of simplification reforms (Points of Single Contact and Zero authorisation projects) and by alleviating SME’s credit constraints including with the implementation of Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (2).

(c)

Portugal shall complete the elimination of the court backlog.

(a)

amend legislation in order to facilitate the issuance of government guaranteed bank bonds for an appropriate amount in accordance with the Memorandum of Understanding;

(b)

adopt the necessary regulatory requirements by end-May 2011 regarding increases in minimum core tier 1 capital adequacy ratio to 9 % by end-2011 and 10 % by end-2012 (to be maintained thereafter);

(c)

ensure that banks by end-June 2011 devise institution-specific medium-term funding plans to achieve a stable market-based funding position in line with periodic target leverage ratios established by the Bank of Portugal and the ECB. The feasibility of these funding plans and their implications for leverage ratios will be examined by the Bank of Portugal and the ECB, in consultation with the Commission and the IMF staff on quarterly basis.

(d)

indicate clear periodic target leverage ratios for banks and step up the solvency and deleveraging assessment framework during 2011;

(e)

ensure that the state-owned Caixa Geral de Depósitos will be streamlined to increase the capital base of its core banking arm as needed and launch a process to sell Banco Português de Negócios on an accelerated schedule. To this end, Portugal shall submit a new plan to the Commission for approval under State aid control rules;

(f)

amend by end-2011 legislation concerning early intervention and resolution of banks as well as legislation concerning the Deposit Guarantee Fund and the Guarantee Fund for Mutual Agricultural Credit Institutions, with a view to protecting depositors and facilitate restructuring. In particular, these funds should retain the ability to fund the resolution of distressed credit institutions, but not to recapitalise them. Such funding shall be capped at the amount of guaranteed deposits that would have to be paid out in liquidation and be permissible only if it does not prejudice the ability of these funds to perform their primary function;

(g)

amend by end-November 2011 the Insolvency Law to provide that guaranteed depositors and/or the funds (directly or through subrogation) will be granted a priority ranking over unsecured creditors in the credit institution’s insolvent estate and to better support effective rescue of viable firms;

(h)

undertake to encourage private investors to maintain their overall exposures on a voluntary basis.